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Pomerance: Options for our energy future

By Steve Pomerance

Posted:
07/03/2011 01:00:00 AM MDT

The city is analyzing the possibility of creating municipal electric utility, and confronting the potential costs. As an alternative, Xcel has proposed building a new wind farm and selling the renewable energy credits to Boulder, but Boulder would have to sign another 20 year franchise. Here`s a framework that may help evaluate these alternatives:

Option 1: The council puts both municipalization and the Xcel franchise/wind deal on the ballot. Many voters will just vote no on both because they think the council doesn`t know which is better, so it is likely that both will fail. If history is any guide, Xcel will spend huge sums on a campaign for their franchise, so Boulder citizens` voices will be drowned out. The council will thus have set up a situation that supports killing off municipalization, which apparently is Xcel`s worst fear.

Option 2: The council puts the Xcel proposal alone on the ballot. If the Xcel proposal passes, Boulder residents and businesses face an immediate rate increase of about 7-8 percent to pay for the wind farm credits. Additionally, we pay Xcel`s rate increases to retire coal plants and build a new gas plant under Clean Air Clean Jobs Act (CACJA) requirements. And we will keep paying for rising coal costs. The Xcel wind deal provides weak protection against gas price increases -- even if gas goes up at 2 percent/year, Boulder gets no benefits. And if the PUC turns the Xcel deal down, nothing happens and municipalization is dead anyway.

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The city needs to put the wind farm deal out to bid. There must be other wind developers who would build if their price were guaranteed, and utilities who would buy wind energy for the same price as their most costly fossil fuel energy, as in the Xcel deal. It is debatable as to whether the city should do a deal like this at all, but at least putting it out to bid wouldn`t require a 20-year Xcel franchise.

Option 3: The city puts authorization for a municipal utility on the ballot, and in spite of a likely very expensive campaign by Xcel, it passes. Then the city could contract directly to build wind farms (or shift any successful bidders from the above option to a direct purchase). Purchasing directly has many benefits over the Xcel deal: Because the municipal utility would have no base-load coal power, it could more easily integrate wind energy. Thus, Boulder could use more of the available wind, thereby reducing costs and emissions at the same time. (Also, municipal tax-exempt financing may help reduce wind costs, and all opinions I have heard are that the production tax credits will be extended by Congress.)

Under the municipalization option, the city would not be subject to state law and PUC regulations that impose the inefficient limits on solar (the 120 percent limit on net metering and the tight solar gardens regulations), so that more solar could be built at lower cost, especially on the larger rooftops of commercial and institutional buildings. The city could also use the electric bills as a way to secure collection of loans for efficiency and renewables, making financing these projects cheaper and more cost-effective. The city could do a real smart grid, so that demand management, efficiency investments, electric vehicles, local generation, etc. are all integrated.

The Stranded Asset Issue: The biggest uncertainty in the municipalization business plan is the potential cost of paying Xcel`s claims for "stranded assets" for any power plants that might be left without an equivalent market. But there may be a win-win opportunity. Under the CACJ Act, Xcel will invest nearly $400 million in upgrading its Pawnee and Hayden coal plants, for which Xcel ratepayers will have to pay. But the cost of these improvements is close to, or in some cases, exceeds the remaining value in the plants. If Boulder municipalizes, Xcel`s total load would be reduced, so some of these coal plants could possibly be shut down. It appears that this could be a better deal financially for the Xcel ratepayers, even including the cost of replacing their coal-fired electricity with gas. It`s not the perfect solution, but it could very significantly reduce Boulder`s financial exposure, save money for the Xcel ratepayers, and dramatically cut CO2 output. These are the kinds of solutions both we and Xcel should be looking for.

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